Today’s REI Classroom Lesson
In the classroom today, Marc Schwartz chats with us about the differences between LLCs, Joint Tenancy, and Living Trusts, including which has the most benefit.
REI Classroom Summary
Hear more about living trusts and how to avoid probate from our expert host, Marc Schwartz.
Listen to this REI Classroom Lesson
Real Estate Investing Classroom Show Transcripts:
Mike: Welcome back to the FlipNerd.com REI Classroom, where experts from across the real estate investing industry teach you quick lessons to take your business to the next level. Now, let’s meet today’s expert host.
Marc: Hi, again. It’s Marc Schwartz, your personal family lawyer. Here, as your host of the REI Classroom. Today, our topic is going to be how do we hold title to our real property.
Mike: This REI Classroom real estate lesson is sponsored by VirtualStaffNow.com.
Marc: Some attorneys will tell you that you should own your property than LLC or a legal entity, and I think those are great ideas and those are right for a lot of people, but I’m actually going to be talking to you from an estate planning standpoint. All of these things that I’m going to talk about today apply both for estate planning and non-estate planning, but hopefully you’ll understand what I mean, as I go through.
I’m going to talk a little bit about from California’s perspective, but applies nationally. The most common form of ownership is probably joint tenancy. I feel that that’s popular, because it’s really easy. The word joint is in there. People who especially, who are married, feel that it’s a great way to hold title.
The problem with joint tenancy is that, there’s not a lot of control. For those of you who don’t know, joint tenancy is a legal magic, where when you die, your interest will automatically invest in those people who you own the property with. In a husband and wife situation, if the husband dies, the wife will automatically by operation of law, own the property.
The advantage of joint tenancy is it avoids probate, which is a court preceding where assets are transferred. That’s the good part. The bad part is that lack of control.
For example, I had a situation recently where a client called me up. Her husband had died, and her husband had owned the property as joint tenants with his siblings. The wife wanted to know what happen to her interest, and she wanted to know how does she get it. I told her, “Unfortunately, you don’t, because the husband owned a joint tenancy with his brothers and sisters. The brothers and sisters now own the property.”
Joint tenancy is not the greatest thing. You can also imagine that same scenario happening, maybe in second marriages. So be very careful when someone tells you to own your property in joint tenancy, because there’s a big drawback.
In California we have something called community property. Not all of you have that. Community property is great, but you’re still going to go through that probate proceeding on the second death. By the way, in joint tenancy, I told you it avoids probate on that first death, it’s not going to avoid probate on that second death.
For those of you who own real property, the really best solution is to own until living trust. Even if you have that property in LLC, that LLC should have as its owner, a living trust. What a living trust does, that’s better than all of the other things, is it gives you complete control. It avoids probate, not only in the first death, but the second death, and it also has some really great tax advantages.
We can talk a little bit more about that, but if you own a property in joint tenancy, you may not be getting the full tax advantage, when you go to sell the property. Whereas with the living trust, the people who inherit the property, won’t have to pay any taxes when they sell it.
Those are some of the highlights of things that you may want to consider when owning in joint tenancy. Laws are constantly changing in California. Actually, it just passed a law called, transfer on death deeds. That’s another option. But we can talk about that more on another classroom.
But for right now, just remember, own your property in a living trust and be owned on an LLC, have the living trust own the LLC. If you have any more questions about this, my name is Marc Schwartz, the Law Office of Marc Schwartz, and I’m here to help. Thank you very much.
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